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Is Aston Martin share price too cheap or is it a value trap?

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Aston Martin (LON: AML) share price has been in a strong downward trend as concerns about the company’s growth and balance sheet continues. It was trading at 467p on Tuesday, which was a few points above the year-to-date low of 357p. The stock has collapsed by more than 96% from its all-time high, bringing its total market cap to about £546 million.

Turnaround challenges remain

Aston Martin Lagonda is an iconic British automaker that has struggled in the past few years. The firm’s unit and revenue growth has declined sharply while its losses have jumped. At the same time, the performance of its Formula 1 team has been underwhelming. 

Aston Martin’s revenue rose by just 9% in the first half of 2022 as wholesale units dropped by 8%. The management blamed this decline to the ongoing supply chain challenges. Its gross margin rose to 35% while the company saw elevated demand for its V12 Vantage and DBX707 brands.

Most importantly, Aston Martin reported a loss before tax of £285.4 million while its net debt rose from £791.5 million in H1’21 to £1.26 billion in H1’22. 

Aston Martin share price has struggled even after the company announced plans to raise £653 million from investors like Saudi Arabia, as we reported here. Management hopes to use these funds to reduce debt and increase operational efficiencies. 

The stock faces numerous challenges ahead. First, Aston Martin expects that it will boost its wholesale sales to 10,000 by 2024/25. This is a bit ambitious considering that the firm expects to sell 6,600 units in 2022. 

Second, with its Formula 1 team struggling, analysts believe that this could have an impact on the company’s appeal among buyers. Finally, another fundraising and potential dilution is possible in the coming years. 

Aston Martin share price forecast

The daily chart shows that Aston Martin’s stock price has been in a strong bearish trend in the past few months. The sell-off continued even after the company raised funds from Saudi Arabia. It remains below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved to the neutral point at 50.

The shares have formed a descending channel pattern that is shown in blue. Therefore, while the company’s fundamentals are challenging, there is a likelihood that it will bounce back as bulls target the important resistance level at 893p. This target was the lowest level in June 2022.

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